By GAGANDEEP GHUMAN
Published: Oct 21, 2016
Published: Oct 21, 2016
SEVEN years ago, the then Mayor of Squamish Greg Gardner went to the city of Shanghai in China along with a senior district official with a clear mandate—promote economic development and encourage investment from the Asian giant into our small town. “Canada has now been designated as a destination for Chinese tourism and an acceptable place for Chinese investment,” Gardner told an economic development committee at that time, “and I believe we should capitalize on that.”
Seven years seem like a long enough time to change political beliefs. Now Mayor Patricia Heintzman has written a letter urging them to implement a 15 per cent foreign buyer’s tax in Squamish, which would most likely impact Asian and specifically Chinese investors looking to move to invest in Canada. Heintzman says Squamish is inextricably linked to Vancouver and decisions made there can have an impact in Squamish as well. She says the district is proactively working on a number of projects such as strategic social housing projects, incentives for secondary suites, laneway homes, purpose built rentals and density bonus for developers.
The district has also created an affordable task force that has been working on a draft strategy which would come before council in the near future.
Our fear, and one that is very probable, if not inevitable, is that Squamish will become even more desirable to foreign home buyers looking to avoid the tax and further compound the issue of affordable housing in Squamish: Heintzman
“The phenomenon of foreign buyers contributing to the increasing housing prices in Vancouver is evident in Squamish as well. Our fear, and one that is very probable, if not inevitable, is that Squamish will become even more desirable to foreign homebuyers looking to avoid the tax and further compound the issue of affordable housing in Squamish,” she wrote in her letter.
This, she fears, would create a ripple effect which will create an unaffordable housing market for the average family and the labour force while excluding the town from opportunities created through the affordable housing fund that will be generated by the tax revenue. “The district of Squamish would like to be included in the foreign buyer’s tax. This request is an effort to help ensure affordability in the Sea to Sky Corridor for average families and the preservation of our labour force that drives our business community,” she wrote.
The Mayor is right about the issue of affordability. Social media is abuzz with stories of people having to move out of Squamish against their will because of a housing market that has gone berserk in just the last two years. While some have cashed out to make a decent profit, those on the fence are finding their small-town incomes are now incapable of servicing high mortgages. For those who have missed the bus, the dream seems to be turning into a nightmare. Some businesses are even finding it difficult to retain employees who would want to put roots down in the town or pay them enough for them to afford a home. The old assurances are being swept away by unwelcome winds of change from distant shores, it seems.
But is such a presumptive tax on foreign buyers the remedy for the very real problem of affordable housing our town faces? Should we curb the market with Soviet-style socialism instead of seeking innovative solutions? Not if you listen to Tsur Sommerville, a professor of real estate at the UBC Centre for Urban Economics and Real Estate, who says affordable housing is a problem that basically stems from disequilibrium in demand and supply. “I don’t think a tax on a foreign buyers will help you solve the affordability problem; it’s more an issue of supply. You have to be able to build the unit as demand comes on,” he says.
She is asking for a tax in a market where there is no evidence whatsoever of foreign buyers. Let’s see what the data is on non-resident purchases and then make a decision: Tsur Sommerville, UBC real estate professor
Sommerville also questions the timing of the Mayor’s request: “I’d like to wait and see if there is an actual problem. This feels like you are putting in a tax because there might be a problem but you don’t know. She is asking for a tax in a market where there is no evidence whatsoever of foreign buyers. Let’s see what the data is on non-resident purchases and then make a decision. You really want to see if there is a problem before you ask for the tax,” he says.
Thomas Davidoff is a professor in the strategy and business economics division of the Sauder Schools of Business. He says Squamish doesn’t face the same problem as faced by Vancouver, which is the lack of space to build more housing. Squamish, on the other hand, has developable space for a variety of housing options.
“Squamish has a fair number of developable land compared to Vancouver which is in a more difficult situation because you have to infill for density in the existing neighbourhoods, which the neighbours hate. To the extent that Squamish feels there is land available on the periphery, it would make some sense to develop that land. Protecting the environment is important but Squamish has the ability to dampen the price growth with new development, even though it can be challenging, politically,” he says.
Davidoff says Squamish has other solutions it can try, such as having higher property taxes for those who don’t live and work in the community. People pay more in income and sales tax and less in property taxes but the government needs to raise the money somehow and a selective tax code for those who are absentee owners may be one solution to get more money for affordable housing. The decision to buy a home isn’t always the result of cogent reasoning; emotions and perception can play an equally important role, says Anne McMullin, the president of Urban Development Institute, a non-profit association of the development industry. Asking to enforce a tax on foreign buyers would send a negative message that the town isn’t open for business, which can depress the construction and real estate industry in Squamish, the town’s economic mainstay. “Squamish’s economy is doing quite well and if you send a message that we don’t want this kind of business, it has a negative impact on other sectors of the economy. There are good high paying jobs in construction right now and its bringing people to Squamish. Now if you throw in a punitive tax in there somewhere, it’s going to create a negative impression in the development community,” she says.
Taxing the foreign buyers hasn’t made housing affordable in Vancouver either, McMullin says. It may have put a dent on prices of higher-end homes on the West side of the city, but it didn’t do much to solve the affordability problem for the general population. Like Sommerville, she also questioned the need for a tax in Squamish on foreign buyers, who are looking to buy high-end properties in the city and closer to downtown. The demand for tax in Squamish is a good example of how government keeps addressing demand side while ignoring the supply side, where the solution to affordability lies in her view. “You need to look at zoning, processing times, fees and charges and really focus on increasing supply if you know clearly that there is demand,” she says. The government demand to tax foreign buyers reflects the jaundiced view of immigration, which needs to be seen as welcome foreign investment in Canada. “People moving and buying a home are making an investment in Canada. And let’s not forget that construction is a huge part of our GDP, and if you take that away, there won’t be much left,” she says.
A boom in construction is what brought Roland Hould to Squamish. Hould’s company offers concrete services, along with commercial and residential snow removal. He moved to Squamish from Calgary after hearing about the construction boom from his friends. It was an easy decision considering how sluggish the Alberta economy is at the moment. His business is doing well and he feels the tax on foreign buyers or even the call for it may negatively affect the housing market. But he also agrees that something needs to be done for affordable housing. Similar concern is also evident in the words of Keli Hopkins of New Era Plumbing and Heating. Lack of affordable housing has forced her company’s employees out of town with some commuting from North Vancouver and downtown Vancouver. Quite remarkably, they have been able to find basement suites for cheaper in the city than they could find here. Those employees can’t envision a future in Squamish and her company can only pay so much. Eventually the chasm between wages and housing will force them to seek a job in some other city where they have a better chance of owning a home. That, in turn, can affect output for companies who are struggling to retain workforce. And yet Keli says taxing the foreign buyers in the way Squamish Mayor is proposing might not be the answer. Foreign investment is needed but it might be a good idea to tax them for homes under $1 million, so they don’t have an unfair advantage over regular home buyers who are looking under that price point.
Interventions such as the tax on foreign buyers can have a political tinge and often mask the government’s inability to create a long-term plan for affordable housing, says local realtor Carrie Chase. With the tax in Vancouver, new mortgage rules introduced by Ottawa recently would further diminish the real estate activity in town, she says.
“We are not seeing spike in sales related to foreign buyers in Squamish. They’re just not flocking here to purchase, despite our lack of the tax. As a semi-rural/suburban market, we’re still just not as appealing to foreign buyers. And so far the stats clearly show that Toronto has reaped the ‘benefits’ of the tax here in the Vancouver Lower Mainland, and their housing market is being driven up further by foreign investors going there instead while Vancouver and surrounding communities are cooling down,” she says.
Chase says as more than 80 residential projects come on the market, the supply problem is likely to improve, even though the district would have to do more to create more incentives for affordable housing, be it laneway homes or tiny homes. “This is a high demand place so the solution is to create more supply and not penalize people who are buying and those who are relying on their home equity to cash out or retire. We have lots of people working in construction, from plumbers to realtors to property management companies. We live in capitalism and such socialist policies don’t work,” she says.
Mortgage broker Dal Dhami agrees. He says district is generating additional revenue from residential growth and a portion of it can go to building affordable housing. The district should be urging the province to create more affordable housing, not implement punitive taxes. “If the impression goes out that prices are going to be stagnant, people choose not to buy and that affects development and that will affect a lot of people in this town.”
Lauren Joy Patar, however, believes government intervention isn’t a negative thing, especially when the market is forcing so many people out of the community and fraying the town’s social fabric. Patar moved to Vancouver Island and rented a new four-bedroom home for only $1200. They were forced to leave Squamish when the landlord sold his townhome and the new owners expected $2100 to cover his mortgage expenses. Patar says they were also approved of a home loan by CIBC but there was nothing they could afford here, which eventually made them decide to leave town. The current real estate market also discourages young entrepreneurs from implementing their innovate business ideas and makes the town an one-industry town.
“You want to create an environment where new companies and businesses can thrive. Squamish is already a bedroom community of Vancouver and we need public policy to protect the town and the people,” Patar says.Her sentiments are shared by Jeff Cripwell, a local car salesman, who rents in downtown but has put off buying a home in Squamish in the hopes that the market will cool off. He says a tax might help cool off the market and it won’t be a bad thing. “In order to pay for the cheapest home here, you probably need an income of $80,000 and if you are looking to buy a single-family home, you are looking at an annual income of $150,000. It’s not a bad idea to give a bit of a break to this growth.”
But when the government can have a range of solutions to the problem of affordable housing, why kill the boom with taxes? Foreign investment drives growth which creates jobs and raises salaries and thus enabling people to buy homes.